Brownstein, Kong's former boss, has a counter-claim.
He's suing Kong, a former portfolio manager and Senior
Managing Director at SPM who departed in May 2010 and began work
at San Francisco-based Passport Capital in December 2010, for $10
million, according to the
CT Post.

What's interesting is that Brownstein and Kong are fueling over
Kong's departure for San Francisco-based Passport Capital shortly
after Brownstein and his co-manager William Mok, his co-manager,
made over
$87 million last year when one of their funds gained 49.5%
YTD in 2010, the year's best returns, according to
Bloomberg's annual ranking.

By publicly saying he's owed $74 million, Kong is basically
announcing that his winning strategy is the reason the firm
performed so well (see right).

Brownstein's is another version of the story.

He says Kong broke a noncomplete clause. He's suing for Kong to
return a $5 million bonus from 2010 and a $5.8 million
disbursement from the fund's first-quarter profits of last year.

Kong says Brownstein owes him $74 million, which he says covers
his share of the profits he earned SPM.

There are a few issues at play here. First, the issue of Kong's
compensation.

Compensation for portfolio managers at hedge funds is usually
structured so that portfolio managers share in the fund's growth
each year. If a $1 billion fund gains 50%, for example, that's
$500 million in total profits for the fund, which is split
(typically) 80%/20% by the investors and fund managers.

To earn $74 million by typical standards, Kong would probably
have had to have been the sole manager of the $1.2 billion
Structured Servicing Holdings, which gained 134% in 2009 (he
probably wasn't; SPM founder/boss Brownstein (and perhaps Mok
too) appears to co-manage every SPM fund), or the manager of
multiple funds.

But it doesn't appear that he is.

Brownstein and Mok are listed as the managers of the fund that
earned +49.5%, SPM's $1.2 billion Structured Servicing
Holdings LP fund. Mok is also listed as the top manager of SPM
Core, the firm's ~$400 million mortgage-backed arbitrage fund.
SPM Core gained 30.8% in 2010 and in 2009, gained 53.6%. And Mok
also managed SPM Opportunity, which gained 100.2% in 2009 (and
30.8% in 2010).

Don Brownstein

The 50% dip in the fund's returns might be explained by Kong's
departure, but it's also likely to be the result of a less
profittable year for distressed mortgage properties.

Just two months ago, in January, Brownstein was celebrating
earning the #1 best returns in Bloomberg's annual ranking.

Little did we know there was internal strife going on with his
partner, Kong, who took the back-burner as Don Brownstein got the
media spot light beause he founded SPM.